What would be the motive? Forcing Linux users to buy a Xbox or a Windows license? I don't quite buy that: it's such a small market that I venture they'd rather have people be able to play at all via Xcloud and sell a Game Pass Ultimate subscription.

Also remember that Xcloud is still beta, with a feedback form after every session, and probably some telemetry. While it would technically not be rocket science to detect codecs, I'm more inclined to think that this is a blanket denylist because enough reports have come up and showed that using better codecs/higher quality produced a subpar experience even though codecs are reported as supported (which might come from a zillion reasons such as codecs falling back to software decoding, or underpowered hardware, and both could be true for PC, Chromebooks, and Android).